Suzlon Energy Ltd is aggressively working at raising capital and generating cash to tide over the credit crunch. The company’s latest move to sell a 10% stake in its Belgian subsidiary, Hansen Transmissions International NV is another step in this regard.

Based on Hansen’s traded share price, Suzlon would have raised £78 million (about Rs558 crore) from the stake sale.

There are varied estimates of how badly the tightness in the credit markets will hit the company, with one school of thought believing that the company could even go bankrupt under the weight of its high debt.

At one point, in early December, a large section of the market seemed to think that there was a high chance of the company being crushed under its debt burden.

Back then, the company’s valuation had fallen to as low as Rs36.20 per share, barely factoring in the value of the company’s stake in its subsidiaries. Since then, the company’s shares have risen smartly by about 78%, but even at current levels, the value assigned to the core business is rather negligible.

Concerns about the company’s high debt and other capital commitments continue to haunt its valuations.

While the stake sale in Hansen is a welcome move, it’s certainly not enough to make investors comfortable.

After all, Suzlon shares fell by nearly 3% after it announced the Hansen stake sale.

Suzlon currently has a net debt of Rs8,400 crore; it has loan repayments related to its two overseas acquisitions coming due, capital expenditure worth Rs974 crore in the second half of the current fiscal and Rs220 crore in the first half of the next fiscal and a commitment to make a balance payment of €205 million (about Rs1,390 crore) to buy Martifer’s stake in subsidiary REpower Systems AG.

To meet all these needs, the company has sold a minority stake in one of its component subsidiaries in India and has now divested some stake in Hansen. It is also generating additional cash by reducing inventories.

Some analysts believe that internal cash accruals and the moves listed above should suffice in generating enough cash to meet debt obligations.

If the company is indeed able to manage its capital requirements, there would be a huge upside to its stock price, which still trades about 85% lower than its 52-week high.

But based on the collective wisdom of the markets, it may make sense to wait and watch some more.

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